WHAT ARE THE CULTURAL BARRIERS

FACED BY COCA-COLA IN INDIA?

Author: Yaganti Sivakrishna

​Birla Institute of Technology and Science Pilani, India

Abstract: In India, multinational companies face many problems in the initial stages of their
business due to various factors like cultural barriers, language barriers, differences in political
beliefs and economy. This report highlights the problems faced by Coca-cola in its initial stages
because of the cultural barriers and the strategies it has adopted to overcome them. It also
emphasizes on ethical issues and the way Coca-cola has tackled them. Finally, it also talks about
the number of reforms taken by the company to emerge as one of the top brands in India.

​ ​ rand, Strategy, cultural barrier, multinational company, ethical issues, product, reforms.
Keywords: B

I. INTRODUCTION

Coca-cola, the world’s largest selling soft drink company had ​established in the world since 1886. It manufactures
carbonated soft drinks. The most common of these is Diet Coke. It is the third most popular brand in the global
sphere. ​Coca-Cola is the first international soft drink brand to enter the Indian market in the early 1970s. Till 1977
Coca-Cola was the leading brand in India; later, due to FERA (Foreign Exchange Regulation Act), they left India
and didn’t return till 1993. In India, the Coca-cola system comprises a wholly-owned subsidiary of The Coca-Cola
Company namely Coca-Cola India Pvt. Ltd,(Private Limited) which manufactures and sells concentrate and
beverage bases and powdered beverage mixes,a company-owned botting entity,namely, Hindustan Coca-Cola
Company Beverages Pvt Ltd; thirteen licensed botting partners of the Coca-Cola Company,who are authorized to
prepare,package,sell and distribute beverages under certain specified trademarks of The Coca-cola Company; and an
extensive distribution system comprising of customers, distributors and retailers. Coca-Cola India Private Limited
sells concentrate and beverage bases to authorized bottles who are authorized to use these to produce a company
portfolio of beverages. These authorized bottles independently develop local markets and distribute beverages to
grocers. small retailers, supermarkets, restaurants, and numerous other businesses. In turn, these customers make
company beverages available to consumers across India.
The Coca-cola system in India has already invested USD 2 Billion until 2011. Since its re-entry into India. The
company will be investing another USD 5 Billion until the year 2020.

​ II. PROBLEMS FACED BY COCA-COLA

A. CULTURAL IMPACT ON BRAND:

​1. Cultural Effect

According to Pukthuanthog and Walker, 2007, everyone who does business in a foreign country has to be aware of,
and responsive to that nation’s culture.

Since satisfying the cultural learned needs of customers is a fundamental objective of marketing, gaining an intimate
knowledge of the social and cultural influences of customers and the determinants of their purchase behavior are
vital to the success of marketing across cultures.

Having respect and understanding of another culture and as well as the ability to set one’s own cultural mores
(values), generally distinguishes successful global marketers from their less successful counterparts (Bowman and
Okuda, 1985).

Perhaps the biggest problem faced by multinational organizations is learning how best to market products and treat
customers in emerging global markets (Miles, 1995). Global marketers will only be successful if they rise to the
challenge of understanding culture and how it impacts on strategic global market planning and implementation.

Relating to the effect of culture on the people, a global marketer would be looking at addressing the intricacies of
cross-cultural consumer behavior through theories and models that explain cultural influences, consumer needs, and
consumer behavior and then develop methods to compare and contrast consumers and buyers across cultures and
their behaviors.

Culture can also be viewed has to have two other layers: Visible and Hidden. Visible, with representing overt
behavior that can be easily seen like clothes worn and eating habits and Hidden, representing values and morals like
family values that are not visible and basic cultural assumptions such as ethnicity and national identity which are not
always overt but subject of sometimes wrong assumption (Hofstede, 1991).

Culture can therefore also be defined as the patterned ways of thinking, feeling and reacting, acquired and
transmitted mainly by symbols, constituting the distinctive achievement of human groups, including their
embodiment in artifacts, and the essential case of culture consists of traditional ideas and especially their attached
values.

Culture comes in different forms as

(a) Business-specific, which is market planned, controlled and focused within specific rules.

(b) Organization/Employee specific, with varying individualistic cultures of values and beliefs adopted as one.

(c) Individualistic specific, where culture is individualistic imbibed based on interaction with others.

Yeo and Carter 2005, examined the effect of culture strength, managerial competencies and their effect on corporate
performance as measured by return on investment and equity. This study showed that there was a relationship
between corporate culture and managerial competencies and that both have strong influences on corporate
effectiveness. This study, in conclusion, helped managers identify cultural strengths that might be context and
culturally specific.

In recent years, socio-cultural influences have been identified as critical determinants of marketing behavior.
Cultural components such as language, religion, values and attitudes, education, social organization. Aesthetics,
technology, and political discourse have varying impacts and communication to consumer’s perception of a brand or
its elements. As a whole, the cultural component is not believed to affect international operations, however, the
strength lies in the ability of a global marketer to discover similarities and differences to aid selection and operations
o in a new market.

​2. Culture affects India:

Socio-Cultural barriers faced by coca-cola in India Coca-cola, the world’s largest selling soft drink company had
established its strong presence in the world since 1886. Coca-Cola is the first international soft drink brand to enter
the Indian market in the early 1970s. Till 1977 Coca-Cola was the leading brand in India; later, due to FERA
(Foreign Exchange Regulation Act), they left India and didn’t return till 1993. Coca-Cola had to face many issues
regarding its quality, resource exploitation and market exploitation along with price-quality trade-offs. People all
over India are challenging Coca-Cola for its abuse of water resources. Coca-Cola had affected both the quality and
quantity of groundwater. Due to its waste extracts, Coca-Cola was criticized for polluting the nearby fresh water and
groundwater and soil; because of this issue, farmers are suffering from water scarcity. Despite all these social and
cultural issues, customers are using Coca-Cola due to its strong brand reputation all over the world. This is because
Indians are now using more soft drinks and the youngsters are more in this category. However, with many studies
and policy changes, Coca-Cola will be able to establish its brand reputation and increase its market share in the near
future.

This report is prepared from an organizational point of view. The point here is to prepare a report from a consultant
point of view, as Coca-Cola has hired us to do a market study and analysis on the cultural factors the company is
envisaged to face in the Indian Market. Read further to gain a better understanding of the impact of culture on
business processes and activities, and also on business performance.

B. ETHICAL ISSUES CONCERNING COCA-COLA IN INDIA

Situation Analysis:

In 2003, the community near the Coca-Cola bottling plant in Kerala, India protested against the water scarcity and
polluted water that resulted from its bottling operations. The allegations caused the closure of the bottling plant.
Coca-Cola was banned in the state for these unethical business practices. Soon after the incident, the Center for
Science and Environment (CSE), a Delhi-based environmental NGO, released a report indicating the presence of
pesticides, greatly exceeding European standards, in a dozen popular beverages sold under the brand names of The
Coca-Cola Company and PepsiCo. This report raised serious protests all over India on the soft drink industries,
especially Coca-Cola and PepsiCo. Together, the companies have 90% of India's soft drink market.

In response to the allegations, Coca-Cola denies them by saying their products are safe and questions the lab reports
presented by CSE. The University of Michigan placed the Coca-Cola Company on probation in 2006 and asked for
an independent assessment of its operations in India. The soft drinks were examined by an independent lab, The
Energy and Resources Institute (TERI). According to the reports, the soft drinks were declared safe and
pesticide-free. However, the CSE claimed that only the water was tested and not the other ingredients; ingredients
such as artificial flavors and sugar. After the reports from TERI were published the government declared soft drinks
as safe. However, the problems with some bottling plants still remain, due to the depleting levels of groundwater,
day by day.

Critical Issues/Problems​:

Solid waste and water issue: The communities near the bottling plant in India complained about the passage of
sludge as fertilizer, causing health and environmental damage. The most important issue concerning these
communities is the depletion of water levels caused by the Coca-Cola bottling operations which have drastically
reduced the availability of water for irrigation purposes.

Pesticides in soft drinks: The other issue concerning human health caused by Coca-Cola is that their bottled water
and soft drinks contain pesticides that were tested by the reputed NGO, CSE.

Dual product standards: Coca-Cola is accused of having dual standards in terms of its products and safety
measures concerning human health with respect to the USA, Europe, and India.

Community issue: These allegations affected Coca-Cola largely with its sales and also caused the closure of one of
its bottling plants in Kerala, India. Additionally, Coca-Cola’s products are banned in the state of Kerala, India

C. ACTION TAKEN:

Coca-Cola Company, India thought seriously about its corporate responsibility and witnessing huge sales losses. In
order to gain trust among the local communities near the bottling plant, they improved their business practices and
reduced water usage by 34%. Through the practice of rainwater harvesting, Coca-Cola returned substantial water to
the aquifers. They have stopped distributing sludge as Biosolids(fertilizers) to farmers for agriculture use, and have
taken initiatives with the Indian government to encourage the development of additional solid waste disposal sites.
The water used for making soft drinks is treated with activated carbon filtration and run through a purification
process to ensure that the water is free of pesticide residue. The ingredients are also closely monitored and undergo
various quality checks. According to the company’s factsheet, they strictly follow the product standards which are
the same all over the world.

Coca-Cola has also partnered with the NGO’s and the government to provide medical access to poor people through
regular health camps. In addition to its outreach efforts, the company committed itself to environmental
responsibility through its business operations.
The allegations in other ways helped Coca-Cola Company, India to show its corporate social responsibility and to
maintain good product quality standards. The initiatives all over India helped them reach villages for a good cause
and also indirectly marketed their products by establishing trust among the public. After all these allegations, the
CSE is still not convinced of the quality of the product. Therefore, Coca-Cola must prove that they have upgraded
their lab with sophisticated instrument which is capable of measuring pesticide residue in soft drinks
 ​ III. CONCLUSION :

Conclusion is an important part of a case study. After doing a detailed study on the socio-cultural barriers of
Coca-Cola in India, the most noticeable factor is the company is not following and considering the social and
cultural trends and factors. The main drawback which Coca-Cola is facing is it is going against the
environment or exploiting the environment. The company is using freshwater in such a large quantity where
there is a crisis for fresh drinking water; apart from that, due to its waste discharge, they have been spoiling the
water and soil. Therefore farmers are facing numerous problems with their crops. Because of these reasons,
Coca-Cola is facing problems in India. These problems are indirectly affecting the life of the people staying
nearby to the manufacturing plant. Apart from this culture is the most important factor which the company
should keep in mind for further development.
From the above-given recommendation, suggestions, and analysis, it is clear that the cultural and economic
conditions in India are stable and favorable for the company, but the environmental problems are making g
issues among the public and government. Therefore, as suggested, the company should employ an efficient
corporate social responsibility team to monitor their operations in the Indian sub-continent and make policies
to overcome any such instances. With the help of these suggestions, Coca-Cola can make a brilliant come back
to the market.

​REFERENCES

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